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Research from Cerulli Associates reveals that offering alternative investments such as private markets exposure can help advisors attract and retain high-net-worth clients.
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Key takeaways
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Alternatives are growing:
Advisors are increasing allocations to alternatives to support diversification goals, manage volatility, and pursue enhanced return opportunities.
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Private markets support business growth:
Offering private market solutions can help advisors differentiate their practice and strengthen relationships with high-net-worth clients.
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Resources drive better conversations:
Advisors are seeking tools and education that make it easier to explain alternative investments and build client confidence.
Adapting to growing private markets: A playbook for practice success report
Cerulli surveyed more than 200 upmarket advisors representing registered investment advisers (RIAs), wirehouses, independent broker-dealers, national/regional broker-dealers, private banks/bank trusts, retail banks, and insurance broker-dealers.
On average, survey respondents had:
- $663 million average practice assets under management (AUM): These advisors have a higher AUM than the typical advisor and work with a wide range of clients.
- 33% have a core market above $2 million: These advisors’ wealthy clients make them an ideal prospect for private market opportunities.
- 54% have an alternatives allocation of 5% or more: The more sophisticated advisors were more likely to have meaningful alternatives allocations.
Key findings
Alternative investments can help advisors achieve various client outcomes — opportunity for enhanced return, greater income potential, and diversification1 — while simultaneously enhancing their overall business profiles. Both low users and high users of alternatives plan to increase their allocations, and many respondents see opportunity in private equity and credit.
Plan to make alternatives a bigger part of their portfolios
Advisors told Cerulli that they're planning to increase allocations to alternative investments, with the optimal portfolio allocation for alternatives cited at 13%. The primary portfolio objectives mentioned by advisors include diversification, volatility dampening, and enhanced return opportunities.
Alternatives can help you stand out from their competitors
Advisors identified four key ways that an expanded shelf of alternative investments could help enhance their business:2 by differentiating their practices, attracting high-net-worth clients, consolidating assets of clients who have alternative exposure elsewhere, and retaining the assets of clients with complex needs.
Need for resources to explain alternatives
Advisors are faced with a steep education hurdle for implementing alternative investments. In addition to their understanding the products, advisors must also be ready to explain the products to their clients in terms they'll understand. By continuously weaving education into client conversations, advisors can provide a customized client experience.
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Important Information
Survey participants experience may not be representative of others, nor does it guarantee the future performance or success of any product. The opinions expressed are those of Cerulli Associates and are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. There may be material differences in the investment goals, liquidity needs, and investment horizons of individual and institutional investors.
Invesco is not affiliated with Cerulli Associates.
Invesco sponsored this survey. Cerulli Associates offered participants an honorarium for their participation.
The opinions expressed by Cerulli Associates and Investments & Wealth Institute in this article do not necessarily reflect those of Invesco Distributors, Inc. and are subject to change at any time based on market or other conditions and offer no guarantee of future positive performance for any product or security mentioned. These opinions may differ from those of other Invesco investment professionals.
About Risk
Alternative products typically hold more non-traditional investments and employ more complex trading strategies, including hedging and leveraging through derivatives, short selling and opportunistic strategies that change with market conditions. Investors considering alternatives should be aware of their unique characteristics and additional risks from the strategies they use. Like all investments, performance will fluctuate.
You can lose money. Investments in alternative products is highly speculative and involves a high degree of risk and is intended only for investors who do not require immediate liquidity.
Alternative investment products, including hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. There is often no secondary market for hedge funds and private equity, and none is expected to develop. There may be restrictions on transferring interests in such investments.
Alternative products may hold illiquid securities that it may be unable to sell at the preferred time or price and could lose its entire investment in such securities.
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